SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)

|X|  Annual Report Pursuant to Section 13 or 15(D) of the Securities Exchange
     Act of 1934

     For the Fiscal Year ended December 31, 1996

|_|  Transition Report Pursuant to Section 13 or 15(D) of the Securities
     Exchange Act of 1934

     For the transition period from _______________ to _______________

     Commission File Number 0-26284

                           Milestone Scientific Inc.
                           -------------------------
                 (Name of Small Business Issuer in its Charter)

           Delaware                                      11-309811
  ----------------------------                        ----------------
  (State or other jurisdiction                        (I.R.S. Employer
of incorporation or organization                     Identification No.)

    220 South Orange Avenue, Livingston Corporate Park, Livingston, NJ 07039
    ------------------------------------------------------------------------
               (Address of Principal Executive Office) (Zip Code)

                    Issuer's telephone number (201) 535-2717

Securities registered under Section 12(b) of the Exchange Act:

                                                       Name of Each Exchange
  Title of Each Class                                   on Which Registered
  -------------------                                   -------------------
                                      None

Securities Registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $.001 per share
                     ---------------------------------------
                                (Title of class)

      Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.

Yes |X| No _|

<PAGE>

      Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|

      For the year ended December 31, 1996, the revenues of the registrant were
$302,388.

      The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant, based on the closing price on the Nasdaq
SmallCap Market on March 27, 1997 was approximately $15,625,674.

      As of March 27, 1997, the registrant has a total of 5,555,612 shares of
Common Stock outstanding.


                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None

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                                     PART I

Item 1.  Description of Business

      All references in this report to the Company refer to Milestone Scientific
Inc. (formerly U.S. Opportunity Search, Inc.), its wholly owned subsidiaries,
Princeton PMC, Inc. ("Princeton PMC") and Sagacity I, Inc., doing business in
the United States as the Wisdom Toothbrush Co. ("Wisdom"), and its 65% owned
subsidiary, Spintech, Inc. ("Spintech"), unless the context otherwise indicates.

Forward-Looking Statements

      Certain statements made in this Annual Report on Form 10-KSB are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995) regarding the plans and objectives of management
for future operations. Such statements involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties. The Company's plans
and objectives are based, in part, on assumptions involving the continued
expansion of business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, particularly in view of the Company's early stage operations, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved.

General

      The Company develops, manufactures, markets and sells equipment and
related disposable or consumable items and other products for use primarily by
the dental practitioner. Company products focus on practitioner efficiency,
patient comfort, infection control and medical waste disposal. The principal
products of the Company include: (i) the Sharps Disposal System ("SDS"), a heat
activated sterilizer that, on-site, converts needles, syringes and other
"sharps" into sterile plastic blocks for disposal, which the Company began
selling in November 1996; (ii) "SplatrFree(TM)" disposable prophy angles and
related consumable products for use in dental prophylaxis procedures which the
Company began selling commercially in the first quarter of 1997; (iii) "The
Wand(TM)", a computer controlled "painless" injection system

<PAGE>

enabling the practitioner to more quickly and effectively anesthetize patients
in certain dental applications, which the Company plans to introduce at the Fall
1997 American Dental Association Trade Show; and (iv) clinically oriented dental
products, including the "Wisdom" line of toothbrushes, flosses and other
prophylaxis products, which the Company has been selling since the acquisition
of Wisdom in December 1996. The Company markets its products using a clinically
oriented catalog for the dentist practitioner, a dealer network and the Wisdom
distribution system, to approximately 15,500 dentists and 2,000 other accounts.
"The Wand(TM)" and SDS are covered by United States patents.

      The Company was organized in August 1989 under the laws of Delaware. On
November 3, 1995, the Company completed a public offering of Common Stock for
aggregate proceeds of $6,000,000 (the "Offering") and consummated the
acquisition of 65% of the outstanding shares of common stock of Spintech for an
aggregate purchase price of $2,700,000. Spintech developed and owns the rights
to various products used by healthcare providers, including the SDS and its
predecessor, a thermal activated plastic sterilizer ("TAPS"), and has registered
various patents and trademarks related to these products. In March 1996, the
Company, together with Gregory Volok, the Company's Executive Vice President,
founded Princeton PMC as a marketing company. The Company acquired the
outstanding shares of Princeton PMC common stock owned by Mr. Volok in December
1996, making Princeton PMC a wholly owned subsidiary. In December 1996, the
Company acquired Wisdom and obtained United States distribution rights to the
Wisdom line of toothbrushes and prophylaxis products. On March 13, 1997, the
Company completed a private placement of units in which it received gross
proceeds of $4,022,500 (the "Private Placement"). The Company maintains its
executive offices at 220 South Orange Avenue, Livingston Corporate Park,
Livingston, New Jersey 07039, and its telephone number is (201) 535-2717.

Products

      "The Wand,(TM)" Computer Controlled Anesthetic Injection System. "The
Wand(TM)" is a computer controlled local anesthetic injection delivery system
developed by the Company. The Company believes "The Wand(TM)" overcomes the
typical problems of conventional anesthetic injections. "The Wand's(TM)" slim
pencil-like shape is more functional to the user and less ominous in appearance
to the patient. The pencil grip provides a greater level of stability for the
user by preventing antagonistic movements between the patient and the
practitioner during needle placement, a positioning control not possible with
syringes currently in use. A computer driven infusion machine operated by the
standard air controlled foot pedal provides the precision flow necessary for
painless local anesthesia. "The Wand(TM)" provides a highly controlled rate of
emission of anesthetic solution in advance of the needle point. Since the
anesthetic numbs nerve cells immediately on contact, the controlled rate of
fluid emission deadens the path of the needle immediately ahead of the needle's
entry. The controlled rate substantially eliminates the so-called "bee sting"
effect, which is pain associated with the sudden build-up of pressure by the too
rapid flow rate of expelled fluids. Because "The Wand(TM)" uses a disposable
syringe and needle, the Company believes it will offer protection against
cross-contamination.


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      In many procedures, "The Wand(TM)" more quickly anesthetizes by
eliminating the need for preliminary pain blocking injections and the waiting
time required to see if this injection has taken effect before further
anesthetic injections. The Company believes that "The Wand(TM)" will enable a
dentist to provide painless injections, increase productivity, be more sanitary
and will provide important competitive advantages for dentists trying to build
and maintain their practices. While designed for use in dentistry, "The
Wand(TM)" may also have uses in proctology, gynecology, urology and possibly
dermatology and plastic surgery. To date, the Company has focused its marketing
of "The Wand(TM)" exclusively on the dental market

      Although many dentists sometimes give painless injections, it is almost
impossible for them to do so regularly using conventional techniques. Dentists
do not have a strong purchase point or fulcrum against which they may guide
their hand when inserting a needle or while making the injection. The resulting
uncontrolled movement of the needle frequently can be painful to the patient.
Although the dentist is taught to inject slowly, present devices also do not
allow full control of the rate of flow. Thus, the needle often enters tissue
which has not yet been anesthetized.

      A pre-production prototype of "The Wand(TM)" has been clinically tested on
over 1,000 patients. Ninety-six percent of those tested report a "painless" or
significantly less painful procedure than standard procedures. The Company has
not produced production line models of "The Wand(TM)" or made arrangements for
its production. On July 12, 1996, the FDA cleared the "The Wand(TM)" for
marketing in the United States for dentistry.

      Sharps Disposal System. The disposal of hypodermic and other needles,
scalpel blades and other cutting or puncturing devices ("sharps") and other
medical waste is subject to extensive regulation by OSHA under the "Blood Borne
Pathogen Standards" and by various federal and state environmental protection
agencies. Dental and medical practitioners and institutions now generally rely
on pick-up or mail-in services to satisfy the regulatory requirements. Despite
this reliance, they face growing concern and vulnerability because of the lack
of assurance as to the proper handling and processing of this waste by such
services. Stories of polluted beaches and other areas from improperly disposed
of syringes and needles have become regular news. Also, these methods force
clinicians to store potentially infectious or noisome material in their offices
until pick-up and to deal with the growing cost of these disposal services.
Additionally, both regulations and the threat of civil or criminal liability for
improper disposal mandate extensive record-keeping as to the methods used for
disposal and the identification of the disposed products. The Company's SDS
allows dental and medical practitioners and institutions to utilize a safe and
effective in-office method for disposing of sharps. Further, the Company
believes the SDS provides important protection against future liability from the
mishandling of sharps after removal from a dentist's premises by a waste hauler
and can reduce the time during which dentists keep sharps on their premises and
potential liability in connection therewith.

      The principal component of the SDS is a heat processor which raises the
temperature of sharps to 410(degree)F, well above sterilization levels, while
transforming the syringes, plastic SDS


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sharps container and SDS indicator disk into an encapsulating bath of molten
plastic during a four-hour operating cycle. To provide added plastic fill
material required by users of the unit, the Company sells "SDS indicator disks:"
plastic disks that will not melt until temperatures well in excess of
sterilization levels are reached. The SDS processor can accommodate a sharps
container holding 30 to 40 typical syringes and needles. After processing, the
sharps emerge encapsulated in molten plastic in the shape of a solid cylindrical
block approximately one-fourth the original size of the sharps, syringes and
other material placed in the SDS processor. The EPA does not regulate the
processing unit and regulation of the medical waste stream is now at the state
level. EPA guidelines, adopted under the Medical Waste Tracking Act, require
that for medical waste to be discarded as ordinary trash it must: (a) be
sterilized, (b) offer visible proof of sterilization, (c) be unrecognizable, and
(d) be non-reusable. The Company believes that the SDS meets all these
guidelines, as well as similar guidelines in certain states, because of its heat
sterilization process, the verification thereof through the change in shape and
size of the indicator disc and sharps container and the syringes, becoming
unrecognizable and non-reusable as part of the waste stream emanating from the
SDS solid block. State, local and foreign regulation of medical waste and
processing units like the SDS are the subject of extensive, varying regulation.
Some of the state, local and foreign and regulatory schemes are similar to the
EPA guidelines. The Company believes the sale and use of the SDS unit and the
disposal of the medical waste after processing by the SDS unit can be made in
some states, localities and foreign jurisdictions. However, because of the
extensive regulation, some of which addresses the technology of SDS unit, the
user of the unit the processed waste and some or all of these aspects, no
assurance can be given that the SDS unit will be available for sale in a
particular jurisdiction or may be used by a purchaser, and no assurance can be
given that the Company will generate any significant revenues from this product
in the future.

      The SDS is an outgrowth and improved version of the thermal activated
plastic sterilizer or TAPS unit initially developed by Spintech and sold in an
extensive "beta" testing program until the introduction of the SDS. When using
the TAPS the dentist filled a metal transporter with sharps and syringes, then
unlocked and removed a plastic safety cover on the transporter and finally
inserted the transporter in the processor. In the new system, sharps and
syringes are placed in plastic SDS containers (or other compatible sharps
containers), which containers are then inserted directly into the processor,
thus eliminating the need for the separate metal sharps transporter. The SDS
also operates at higher processing temperatures and is capable of handling
larger loads than the earlier TAPS units. Additionally, the SDS processor also
has a larger disposable filter and handles that remain cool during the heating
cycle. The SDS processor unit provides greater odor control, and reduces the
incidence of incomplete melt experienced with some TAPS units.

      The Company has also done preliminary design work or developed prototypes
of modified SDS units to meet the special needs of certain market segments, for
example, the consumer and homecare market. The Company has not yet completed
market studies to determine whether demand justifies the cost of introducing any
of these special purpose SDS processors. In November 1996 the Company entered
into a contract to develop for Biotronix Laboratories, Inc. ("Biotronix"), a new
mini-waste disposal system for use by visiting nurses,


                                       4
<PAGE>

diabetics, emergency service vehicles and others involved in a home health care
environment. Biotronix has agreed to pay for the development cost of this
product, up to a maximum of $125,000 of which $50,000 has been paid. Biotronix
has been granted a worldwide non-transferable license to make, use and sell this
product, for the life of the governing patent for a royalty of 6% of gross
sales.

      "SplatrFree(TM)" Prophy Angles. Prophy angles are dental drill accessories
incorporating a cup-like tip moving at high rotational speeds which are used by
dentists and oral hygienists in teeth cleaning and other prophylaxis procedures.
Prophy angle tips frequently cause splattering of saliva, particulate matter and
possibly pathogens onto the dentist, hygienist, dental tools and surrounding
surfaces. The "SplatrFree(TM)" prophy angle has a unique tip design that
substantially eliminates splattering. The "SplatrFree(TM)" prophy angle is
available in disposable models. The Company believes that its prophy angle can
improve dental office infection control and hygiene by reducing the spread of
infection from patient to patient and from patient to dentist or hygienist. In
November 1995, 104 pre-production prototype exemplars of the prophy angle,
accompanied by a questionnaire, were distributed to 12 dentists and oral
hygienists for trials. In response to the questionnaire, all 12 dentists and
oral hygienists indicated that the prophy angles they currently use cause heavy
or moderate splattering. Three of those surveyed indicated that use of the
Company's prophy angle eliminated splattering, while seven of those surveyed
indicated that use of the prophy angle reduced splattering noticeably. One
dental practitioner surveyed indicated that the prophy angle reduced splattering
only slightly and another indicated that no reduction in splattering was
observed. On February 8, 1996 the FDA responded to the Company's 510(k)
Premarket Notification and issued an order clearing the prophy angle for
marketing in the United States.

      Clinically Oriented Dental Products; "Wisdom(TM)". In addition to the
proprietary products of the Company, since December 1996 the Company has sold to
dentists a line of clinically oriented dental prophylaxis products which include
the Wisdom line of dentist distributed toothbrushes, flosses and other
prophylaxis products, hand instruments, fluoride treatment products and topical
anesthetics. The clinical line is designed for use in a wide variety of dental
prophylaxis and periodontal procedures. All of these products are manufactured
by other companies, and the Company acquires them for resale through a variety
of means, including acting as exclusive and non-exclusive marketing agent,
purchasing bulk product for resale, and purchasing standard products for private
labeling.

Manufacturing and Sources of Supply

      All of the Company's SDS processing units have been manufactured by
Arbutus, Inc., ("Arbutus") a domestic manufacturer, in accordance with detailed
specifications provided by the Company. However, the Company has no on-going
agreement with Arbutus for the manufacture of its units. Based on its
relationship with Arbutus, the Company expects Arbutus to continue to remain
available for manufacture of the SDS processing units. Team Technologies, Inc.
("TTI") produces SDS indicator disks for the Company and Winfield Medical, Inc.
will produce SDS sharps plastic containers recommended and offered by the


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<PAGE>

Company for use with the SDS. The Company has no on-going agreement regarding
these manufacturing arrangements with either TTI or Winfield Medical, Inc.
Termination of the Company's manufacturing relationship with Arbutus, or other
interruption or curtailment of the Company's supply of units could adversely
affect the Company.

      All "SplatrFree(TM)" prophy angles have been produced for the Company by
TTI pursuant to an agreement entered into in July 1995. Prototype prophy angles
were produced in a single cavity mold purchased by the Company for $7,000.
Commercial quantities of prophy angles will be produced utilizing a 16-cavity
production mold capable of producing more than 30,000 prophy angles per day,
purchased by the Company at a cost of $72,000. Quality control problems
experienced at TTI on initial use of the production mold prevented it from
delivering commercially acceptable product to the Company through the end of
1996. Small modifications to TTI production molds, however, permitted commercial
delivery of prophy angles to begin in the first quarter of 1997.

      In April 1996, Wisdom entered into an Exclusive Distributorship Agreement
(the "Distributorship Agreement") with Wisdom Toothbrushes Limited ("WTL")
appointing Wisdom as the exclusive distributor of the Wisdom line of dentist
distributed toothbrushes, flosses and other prophylaxis products in the United
States of America, various United States territories, Canada and certain other
smaller markets. The Distributorship Agreement may be terminated by either
party, commencing in April 1999, on twelve months prior written notice. The
Distributorship Agreement now covers approximately 32 products. WTL may
terminate the agreement if Wisdom fails to purchase certain specified minimums,
unless Wisdom reimburses WTL for its unrecovered overhead and profit margin in
the underage.

Marketing

      The Company markets its products directly to users through a dealer
network of domestic and foreign independent sales agencies and persons and
manufacturer representatives, the Wisdom distribution system and a clinically
oriented catalog for the dentist practitioner. The Company promotes its products
using trade advertising, direct mail and attendance at dental trade shows. The
Company estimates that it sells through Wisdom to approximately 15,500 dentists
and 2,000 other accounts utilizing four salesmen. The Company intends to
introduce "The Wand(TM)" at the Fall 1997 American Dental Association Trade Show
and thereafter market it directly. The clinically oriented dental prophylaxis
products generally are sold using the Wisdom distribution system. The Company
plans to use Wisdom to help market the "SplatrFree(TM)" prophy angle, and in the
future it may use the Wisdom distribution system for marketing its other
proprietary products. The Company currently markets its products primarily in
the United States.

      The SDS and its precursor, TAPS, is sold primarily to dentists for use in
their offices. The Company sells the SDS unit to independent distributors for
$450 to $600. For use with the SDS, the Company also sells supplies of the SDS
indicator disks and sharps containers. During the year ended December 31, 1996,
the Company's sales of TAPS and SDS units and


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related disposable items to Wisdom (before it was acquired by the Company)
accounted for 38.2% of the sales for the period. Wisdom was the only customer of
the Company which accounted for more than 10% of the Company's sales.

Competition

      The Company faces intense competition from many companies in the medical
and dental device industry, including well-established academic institutions,
possessing substantially greater financial, marketing, personnel, and other
resources. Most of the Company's competitors have established reputations,
stemming from their success in the development, sale, and service of medical
products. Further, rapid technological change and extensive research and
development characterize the industry. Current or new competitors could, at any
time, introduce new or enhanced products with features that render the Company's
products less marketable, or even obsolete. Therefore, the Company must devote
substantial efforts and financial resources to enhance its existing products, to
bring its developmental products to market, and to develop new products for its
related markets. In order to compete successfully, the Company must establish an
effective distribution network. Several regulatory authorities must also approve
the Company's products before they may be marketed. There can be no assurance
that the Company will be able to compete successfully, that its competitors will
not develop technologies or products that render the Company's products less
marketable or obsolete, or that the Company will be able to successfully enhance
its existing products, effectively develop new products or obtain required
regulatory approvals therefor.

      The primary competition for the SDS are the services provided by licensed
medical waste haulers. Except for the largest waste generators, pick-up is
generally made once per month which results in storage on premises of dangerous
and sometimes noisome medical waste. The Company believes that SDS will provide
most smaller waste generators a safer and lower risk means for disposal of
sharps. Various competitors offer devices for destruction of regulated medical
waste produced by hospitals and other generators of large volumes of waste.
These devices generally are significantly more expensive than the Company's
larger proposed SDS and do not always render the medical waste unrecognizable. A
competitor's grinding mechanism that reduces metal and glass in bulk and
encapsulates them in melted plastic provided by the waste is priced at more than
three times the price of the SDS unit and, management believes, is prevented by
the Company's patents from adding new plastic with a known melting point.

      The Company's "SplatrFree(TM)" prophy angle competes with prophy angles
produced and distributed by a number of major manufacturers and distributors and
other producers or distributors of dental products, many of whom have
significant competitive advantages because of their size, strength in the
marketplace, financial and other resources and broad product lines. The Company
will compete on the basis of the superior, non-splattering performance of its
prophy angle and product quality.


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<PAGE>

      "The Wand(TM)" will compete with non-automated disposable and reusable
syringes and other local anesthetic delivery systems generally selling at
significantly lower prices and utilizing established and well understood
methodologies. "The Wand(TM)" will compete on the basis of its performance
characteristics.

Patents and Intellectual Property

      The Company's patents are believed to be material to its business and
potential growth. The Company holds the following six United States patents:

                                                         U.S. Patent     Date of
                   Description                              Number       Issue
                   -----------                              ------       -----
SDS

Apparatus and Method for Sterilizing, Destroying and
  Encapsulating Medical Implement Wastes                  4,992,217     2/12/91

Apparatus and Method for Verifiably Sterilizing
  Destroying and Encapsulating Regulated Medical Wastes   5,078.924      1/7/92

Apparatus and Method for Verifiably Sterilizing,
  Destroying and Encapsulating Regulated Medical Wastes   5,401,444     3/28/95

"The Wand(TM)"

Hypodermic Anesthetic Injection Method                    4,747,824     5/31/88

Hypodermic Anesthetic Injection Apparatus                 5,180,371     1/19/93

OTHER

Hypodermic Syringe Needle Destroying and Sterilizing
  Apparatus and Method                                    4,877,934    10/31/89

      The Company has received from the United States Patent and Trademark
Office a first Office Action on the filing of a patent for the "SplatrFree(TM)"
prophy angle, and has responded to their request for appropriate information.

      The Company has adopted the trademarks "SplatrFree(TM)," "The Wand(TM)"
and SDS but has not yet obtained registrations of these names.

      The Company relies on a combination of patent, copyright, trade secret,
and trademark laws and employee and third-party nondisclosure agreements to
protect its intellectual property rights. Despite the precautions taken by the
Company to protect its products, unauthorized parties may attempt to reverse
engineer, copy, or obtain and use its products and other information the Company
regards as proprietary. Litigation may be necessary to protect the Company's
intellectual property rights and could result in substantial cost to, and
diversion of effort by, the Company with no guarantee of success. The failure of
the Company to protect


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its proprietary information, and the expenses of doing so, could have a material
adverse effect on the Company's operating results and financial condition.

      While there are no current claims that the Company's products infringe on
the proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company in the future
with respect to current or future products or that any such assertion may not
require the Company to cease selling such products, or to enter into
arrangements that require the Company to pay royalties, or to engage in costly
litigation. Although the Company has received no claims of infringement, it is
possible that infringement of existing or future patents or proprietary rights
of others may occur. In the event that the Company's products infringe patent or
proprietary rights of others, the Company may be required to modify its
processes or to obtain a license. There can be no assurance that the Company
would be able to do so in a timely manner, upon acceptable terms and conditions,
or at all. The failure to do so would have a material adverse effect on the
Company.

Government Regulation

      The Company's "SplatrFree(TM)" prophy angles and "The Wand(TM)" were
approved for marketing in the United States by the FDA in April and July 1996,
respectively. Most of the products in the clinically oriented line of dental
products, including Wisdom toothbrushes, do not require FDA marketing approval.
Where such approval is required for the other products in this product line, it
is obtained by the manufacturer. The SDS does not require FDA marketing
approval. Any other new products may require approval.

      The manufacture and sale of medical devices and other medical products,
such as the Company's "SplatrFree(TM)" prophy angle and "The Wand(TM)", are
subject to extensive regulation by the FDA pursuant to the FDC Act, and by other
federal, state and foreign authorities. Under the FDC Act, medical devices must
receive FDA clearance before they can be commercially marketed in the United
States. Some medical products must undergo rigorous pre-clinical and clinical
testing and an extensive FDA approval process before they can be marketed. These
processes can take a number of years and require the expenditure of substantial
resources. The time required for completing such testing and obtaining such
approvals is uncertain, and FDA clearance may never be obtained. Delays or
rejections may be encountered based upon changes in FDA policy during the period
of product development and FDA regulatory review of each product submitted.
Similar delays may also be encountered in other countries. Following the
enactment of the Medical Device Amendments to the FDC Act in May 1976, the FDA
classified medical devices in commercial distribution into one of three classes.
This classification is based on the controls necessary to reasonably ensure the
safety and effectiveness of the medical device. Class I devices are those
devices whose safety and effectiveness can reasonably be ensured through general
controls, such as adequate labeling, premarket notification, and adherence to
the FDA's GMP regulations. Some Class I devices are further exempted from some
of the general controls. Class II devices are those devices whose safety and
effectiveness can reasonably be ensured through the use of special


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<PAGE>

controls, such as performance standards, post-market surveillance, patient
registries, and FDA guidelines. Class III devices are devices which must receive
premarket approval by the FDA to ensure their safety and effectiveness.
Generally, Class III devices are limited to life-sustaining, life-supporting or
implantable devices.

      If a manufacturer or distributor can establish that a proposed device is
"substantially equivalent" to a legally marketed Class I or Class II medical
device or to a Class III medical device for which the FDA has not required
premarket approval, the manufacturer or distributor may seek FDA marketing
clearance for the device by filing a 510(k) Premarket Notification. The 510(k)
Premarket Notification and the claim of substantial equivalence may have to be
supported by various types of data and materials, including test results
indicating that the device is as safe and effective for its intended use as a
legally marketed predicate device. Following submission of the 510(k) Premarket
Notification, the manufacturer or distributor may not place the device into
commercial distribution until an order is issued by the FDA. By regulation, the
FDA has no specific time limit by which it must respond to a 510(k) Premarket
Notification. At this time, the FDA typically responds to the submission of a
510(k) Premarket Notification within 90 to 200 days. The FDA response may
declare that the device is substantially equivalent to another legally marketed
device and allow the proposed device to be marketed in the United States. The
FDA may, however, determine that the proposed device is not substantially
equivalent, or may require further information, such as additional test data,
before the FDA is able to make a determination regarding substantial
equivalence. Such determination or request for additional information could
delay the Company's market introduction of its products and could have a
material adverse effect on the Company. If a device that has obtained 510(k)
Premarket Notification clearance is changed or modified in design, components,
method of manufacture, or intended use, such that the safety or effectiveness or
the device could be significantly affected, separate 510(k) Premarket
Notification clearance must be obtained before the modified device can be
marketed in the United States.

      If a manufacturer or distributor cannot establish that a proposed device
is substantially equivalent, whether or not the FDA has made a determination in
response to a 510(k) Premarket Notification, the manufacturer or distributor
will have to seek premarket approval of the proposed device. A premarket
approval application (a "PMA application") would be supported by extensive data,
including preclinical and human clinical trial data, as well as extensive
literature, to prove the safety and efficacy of the device. Upon receipt, the
FDA will conduct a preliminary review of the PMA application to determine
whether the submission is sufficiently complete to permit substantive review. If
sufficiently complete, the submission is declared acceptable for filing by the
FDA. By regulation, the FDA has 180 days to review a PMA application once it has
been declared acceptable for filing. While in the past the FDA has responded to
PMA applications within the allotted time period, more frequently PMA reviews
occur over a significantly protracted time period, and generally take
approximately two years or more from the date of filing to complete. A number of
devices for which FDA marketing clearance has been sought have never been
cleared for marketing.


                                       10
<PAGE>

      If human clinical trials of a proposed device are required and the device
presents "significant risk," the manufacturer or distributor of the device will
have to file an Investigational Device Exemption ("IDE") application with the
FDA prior to commencing human clinical trials. The IDE application must be
supported by data, typically including the results of animal and mechanical
testing. If the IDE application is approved, human clinical trials may begin at
the specific number of investigational sites and could include the number of
patients approved by the FDA.

      Though the Company's "SplatrFree(TM)" prophy angle and "The Wand(TM)" have
received FDA clearance based on its 510(k) Premarket Notification, there can be
no assurance that any of the Company's other products under development will
obtain the required regulatory clearance on a timely basis, or at all. If
regulatory clearance of a product is granted, such clearance may entail
limitations on the indicated uses for which the product may be marketed. In
addition, modifications may be made to the Company's products to incorporate and
enhance their functionality and performance based upon new data and design
review. There can be no assurance that the FDA will not request additional
information relating to product improvements, that any such improvements would
not require further regulatory review thereby delaying the testing, approval and
commercialization of the Company's development products or that ultimately any
such improvements will receive FDA clearance.

      Compliance with applicable regulatory requirements is subject to continual
review and will be monitored through periodic inspections by the FDA. Later
discovery of previously unknown problems with a product, manufacturer, or
facility may result in restrictions on such product or manufacturer, including
fines, delays or suspensions of regulatory clearances, seizures or recalls of
products, operating restrictions and criminal prosecution and could have a
material adverse effect on the Company.

      The Company is subject to pervasive and continuing regulation by the FDA
regulations which requires manufacturers of medical devices to adhere to certain
"Good Manufacturing Practices" ("GMP") as defined by the FDC Act. GMP require
testing, quality control and documentation procedures. Failure to comply with
GMP can result in the suspension or termination of production, product recall or
fines and penalties. Products must also be manufactured in registered
establishments. In addition, labeling and promotional activities are subject to
scrutiny by the FDA and, in certain circumstances, by the Federal Trade
Commission. The export of devices is also subject to regulation in certain
instances.

      The Medical Device Reporting ("MDR") regulation obligates the Company to
provide information to the FDA on product malfunctions or injuries alleged to
have been associated with the use of the product or in connection with certain
product failures which could cause serious injury. If, as a result of FDA
inspections, MDR reports or other information, the FDA believes that the Company
is not in compliance with the law, the FDA can institute proceedings to detain
or seize products, enjoin future violations, or assess civil and/or criminal
penalties against the Company, its officers or employees. Any action by the FDA
could result in disruption of the Company's operations for an undetermined time.


                                       11
<PAGE>

      In addition to the foregoing, numerous other federal and state agencies,
such as environmental, fire hazard control, working condition and other similar
regulators, have jurisdiction to take actions that could have a materially
adverse effect upon the Company's ability to do business. In addition, expansion
of the Company's operations into foreign markets will require the Company to
obtain additional approvals, permits or licenses and comply with additional
regulatory schemes to those of the United States. Amendments to existing
statutes and regulations, adoption of new statutes and regulations and expansion
of the Company's business could require the Company to alter methods of
operations at costs that could be substantial, which could have an adverse
effect on the Company. There can be no assurance that the Company will be able,
for financial or other reasons, to comply with applicable laws and regulations
and approval, permit or license requirements. Currently, the Company is in
compliance with all applicable statutes and regulations governing its operations
and business as currently conducted, including, without limitation, those in
respect of the SDS, "SplatrFree(TM)" prophy angles and "The Wand(TM)", and the
Company has all necessary approvals, permits and licenses that are applicable to
its business, operations and products and services.

Product Liability

      Failure to use any of the Company's products in accordance with
recommended operating procedures could potentially result in subjecting users to
health hazards or injury. For example, insofar as the SDS unit is used
improperly, (i) premature removal of syringes and other materials before
completion of the melt cycle could subject users to puncture by contaminated
needles prior to their complete encapsulation, or (ii) the inclusion of
excessive amounts of blood soaked gauze or other material could cause the
release of noxious fumes from the sterilizer. In addition, the SDS unit heats
material at high temperatures. Misuse or malfunction of the SDS unit could
result in fire or shock. Any of the foregoing or other failures of the Company's
products to function properly could subject the Company to claims of liability.
The Company maintains liability insurance in the aggregate amount of $2,000,000
with a per-occurrence limit of $1,000,000 which the Company believes to be
adequate. Although no claims have been made against the Company or any of the
customers using its products, there can be no assurance that such claims will
not arise in the future or that the insurance coverage will be sufficient to pay
such claims. A partially or completely uninsured claim, if successful and of
significant magnitude, could have a material adverse effect on the Company.

Research and Development Activities

      During the 1995 and 1996 fiscal years, the Company spent $24,777 and
$167,600, respectively, on research and development activities.


                                       12
<PAGE>

Employees

      The Company had 13 full-time and two part-time employees at December 31,
1996, consisting of four executive officers, four sales employees and seven
office and clerical employees. The Company also uses the services of certain
outside consultants for marketing and other activities.

Item 2.  Description of Property

      On March 20, 1997 Milestone opened new corporate headquarters and
administrative offices occupying approximately 2,693 square feet at 220 South
Orange Avenue, Livingston Corporate Park, Livingston, New Jersey. The Company
occupies this space under a five (5) year and one (1) month lease at a cost the
Company believes to be competitive. The new offices will allow the Company to
consolidate and more effectively coordinate administrative functions previously
conducted at various locations. The offices of Spintech in York, Pennsylvania,
have been closed. Spintech's principal executive offices have been moved to the
new corporate headquarters. Spintech's operational and accounting functions will
be located at and consolidated with those of Wisdom in Deerfield, Illinois.

      Wisdom's corporate, administrative and distribution headquarters are
located in leased facilities at 151 S. Pfingsten Road, Deerfield, Illinois and
occupy approximately 4,607 square feet at that location. Wisdom occupies this
space under a lease terminating January 1, 1998 at a cost which the Company
believes to be competitive.

      Beginning on January 1, 1994, Spintech has rented from Ronald Spinello,
DDS, on a month to month basis at the rate of $200 per month, shop space located
in the home of Dr. Spinello.

Item 3.  Legal Proceedings

      In November 1993 Spintech entered into a nonexclusive license agreement
(the "License Agreement") for products covered by certain of Spintech's patents
with Biotronix Manufacturing Corporation (the "Licensee"). Under the License
Agreement, Spintech received a $100,000 initial advance payment to be credited
against future royalties earned. To maintain its rights under the License
Agreement, the Licensee is required to generate a minimum amount of royalties
for any full quarterly period after the first full year the License Agreement is
in effect; otherwise, Spintech has the right to terminate the License Agreement
and keep the $100,000 advance. The Licensee has the right to maintain in effect
the License Agreement by paying to Spintech a minimum quarterly royalty of
$10,000. In February 1995 the Licensee did not meet the quarterly royalty
minimum, at which time Spintech terminated the License Agreement. Spintech
recorded $100,000 of royalty income in the first quarter of fiscal 1995. In
January 1996 the Licensee demanded the return of the initial $100,000 advance it
made to Spintech. On February 16, 1996 Spintech filed an Action for Declaratory
Judgment in The Court of Common Pleas of York County, Pennsylvania requesting
that the Court declare that Spintech is not obligated to return the initial
advance payment.


                                       13
<PAGE>

      On March 26, 1997, Milestone and Spintech commenced legal action in the
United States District court for New Jersey against Ronald Spinello, DDS,
Chairman and Director of Research of Spintech. In the complaint, plaintiffs seek
recovery of compensatory and punitive damages in excess of $4,000,000 for
extortion and tortious interference with existing and prospective contract and
business relationships, a declaratory judgment that Dr. Spinello has no personal
rights to certain technology developed while he was employed as Director of
Research of Spintech relating to the design and production of ancillary
components of its computer controlled local anesthetic delivery system, a
declaratory judgment that plaintiffs have not breached Dr. Spinello's employment
agreement or the agreement for the purchase by Milestone of a 65% equity
interest in Spintech and injunctive relief. No answer has yet been filed.

      Milestone has been advised by its patent counsel that all technology
developed by Dr. Spinello while employed by Spintech is owned by Spintech. The
Company believes that ownership of the technology relating to these ancillary
components which are the subject of this litigation in no way prevents the
manufacture and sale of its anesthetic delivery system at economically viable
prices.

Item 4.  Submission of Matters to a Vote of Security Holders

      On October 18, 1996, an action by written consent was approved by a
majority of the then outstanding shares of Common Stock of the Company, which
majority included the Company's Chief Executive Officer and then majority
stockholder, to change the name of U.S. Opportunity Search, Inc. to Milestone
Scientific Inc.


                                       14
<PAGE>

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

         (a)  Market Information

      The Company's Common Stock has been traded on The Nasdaq SmallCap Market
under the symbols "USOS" from November 3, 1995 through December 5, 1996 and
"WAND" since December 6, 1996.

      The following table sets forth the high and low bid prices as quoted by
The Nasdaq SmallCap Market since the commencement of trading. Such quotations
reflect inter-dealer prices, without retail mark-up, markdown or commission and
may not necessarily represent actual transactions.

                                                   Bid Price
                                      High                          Low
1995

Fourth Quarter (from November 3)      $5.63                        $4.44

1996

First Quarter                         $6.50                        $4.75
Second Quarter                        $7.75                        $5.38
Third Quarter                         $8.13                        $6.00
Fourth Quarter                        $7.25                        $4.63


      (b) Holders

      As of March 19, 1997, the number of record holders of the Common Stock of
the Company was 127. The Company believes that there are more than 600
beneficial holders of the Common Stock.

      (c) Dividends

      The holders of Common Stock are entitled to receive such dividends as may
be declared by the Company's Board of Directors. The Company has not paid and
does not expect to declare or pay any dividends in the foreseeable future.


                                       15
<PAGE>

Item  6. Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Results of Operations

Fiscal year ended December 31, 1996 compared to fiscal year ended December 31,
1995.

      Revenues increased from $3,473 in 1995 to $302,388 in 1996 reflecting,
primarily, increased sales of TAPS and SDS units and related disposables and the
commencement of sales in December 1996 of the "Wisdom" product line following
the acquisition of Wisdom.

      Cost of sales increased from $7,459 in 1995 to $195,659 in 1996 as a
result of higher sales levels.

      General and administrative expenses increased from $336,816 in 1995 to
$2,225,737 in 1996, an increase of $1,888,921 reflecting increased marketing,
selling and administrative expenses as the Company commenced operations and
geared up for expected higher levels of operations and amortization of deferred
compensation expense of $260,000.

      Research and development costs increased from $24,777 in 1995 to $167,600
in 1996 reflecting, primarily increased activities in the development of "The
Wand(TM)".

      Other income and expense changed from an expense of $254,252 to income of
$337,080 reflecting primarily interest income of $73,203, minority interest in
net loss of subsidiaries of $177,568, proceeds of a judgment obtained by
Spintech for costs incurred on its successful defense of a patent infringement
suit of $65,000 and income from licensing agreements of $19,000.

Liquidity and Capital Resources

      At December 31, 1996 the Company's working capital was $933,256,
reflecting, primarily, the balance remaining of the net proceeds of $4,822,527
received on consummation of the Offering after the purchase for $2,700,000 of a
65% equity interest in Spintech. The Offering also allowed the Company to pay
its outstanding indebtedness and provided the capital resources necessary to
fund its operations.

      On March 13, 1997, the Company completed a Private Placement to 76
investors, all of whom were accredited, through GKN Securities Corp., the
Placement Agent, of 852,262 Units, each Unit consisting of one share of Common
Stock and one Common Stock Purchase Warrant ("Warrant") to purchase one share of
Common Stock, exercisable through March 12, 2000. The per-Unit offering price
was $4.72 which is also the per-Warrant exercise price. The Company received
proceeds of $3,505,964 in the Private Placement after payment to the Placement
agent of (i) commissions ($402,250), (ii) a non-accountable expense allowance of
3% of the gross proceeds of the offering, net of $20,000 previously paid
($100,675), and (iii)


                                       16
<PAGE>

expenses advanced by the Placement Agent for mailing ($3,361), and the payment
of blue sky fees and expenses. The Placement Agent also received warrants to
purchase 85,226 Units exercisable through March 12, 2002 at a per-Unit exercise
price of $4.72. The Company issued the 852,262 shares of Common Stock contained
in the Units pursuant to exemptions provided under Sections 4(2) and 4(6) of the
Securities Act of 1933, as amended, and Regulation D promulgated thereunder.

Item 7.  Financial Statements

      The financial statements of the Company required by this item are set
forth beginning on page F-1.


Item  8. Change in and Disagreements with Accountants on Accounting Financial
         Disclosure

      Disclosure called for by this item has been previously reported under the
Exchange Act of 1934, as amended, on a Form 8-K dated January 29, 1996.


                                       17
<PAGE>

                                    PART III

Item  9. Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act.

Directors, Executive Officers and Key Employees:

                                                                        Director
        Name             Age          Position with the Company           Since

Leonard Osser            49    President, Chief Executive and Chief       1991
                               Financial Officer and Director of the
                               Company and President, Chief
                               Executive Officer and a Director of
                               Spintech

Gregory Volok            47    Executive Vice President, Chief            1996
                               Operating Officer and a Director
                               of the Company and Executive Vice
                               President and Chief Operating Officer
                               of Spintech

Joel Warady              40    Vice President of the Company and
                               President of Wisdom

Michael J. McGeehan(2)   29    Vice President and Director of the         1995
                               Company and a Director of
                               Spintech

Ronald Spinello, DDS     60    Director of Research and Chairman of
                               Spintech

Giovanni Montoncello(1)  50    Director                                   1995

David Sultanik(2)        40    Director                                   1996

Stephen A. Zelnick(1)(2) 59    Director of the Company and a              1996
                               Director of Spintech

--------
(1)   Member of Compensation Committee
(2)   Member of Audit Committee

      Leonard Osser has been President, Chief Executive Officer, Chief Financial
Officer and a director of the Company since July 1991. From 1980 until the
consummation of the offering in November 1995, he had been primarily engaged as
the principal owner and Chief Executive of U.S. Asian Consulting Group, Inc., a
New Jersey based provider of consulting services in "work-out" and "turnaround"
situations for publicly and privately owned companies in financial difficulty.
During his career, Mr. Osser has provided consulting service for, or with
respect to, companies in such related industries as medical devices, resource
recovery and reprocessing and waste disposal and a wide variety of other
industries including fashion accessories, entertainment, telecommunications,
wood processing and


                                       18
<PAGE>

securities. While consulting for, or serving as an executive in, the securities
industry, Mr. Osser structured and arranged for financing and evaluated a large
number of companies in diverse industries.

      Gregory Volok has been Executive Vice President, Chief Operating Officer
and a director of the Company since December 1996. He initially joined the
Company in March 1996 as the President of Princeton PMC. For more than ten years
prior thereto, Mr. Volok served in various sales and marketing executive
positions of increasing responsibility with Dentsply International, Inc. (the
world's largest distributor of dental supplies and equipment), including serving
as the executive responsible for launching its caulk endodontics line and the
executive responsible for domestic sales of its Cavitron Division.

      Joel Warady has been Vice President of the Company since January 1997 and
President of Wisdom for more than five years.

      Ronald Spinello, DDS has been Chairman of Spintech since its founding in
1991, Director of Research of Spintech since December 1994 and acted as
President and CEO of Spintech from February 1995 until November 1995. He is the
inventor of all of Spintech's products. Previously, Dr. Spinello had been
engaged in the private practice of dentistry.

      Giovanni Montoncello has been a director of the Company since June 1995.
He has been a self-employed Interior Designer in Milan, Italy for more than 5
years. He has also served during such period as a part-time instructor in
interior design at the G. Cova Art School in Milan, Italy.

      Michael J McGeehan has been a Vice President of the Company since January
1997 and a director since June 1995. He was the Managing Director of Forefront
Information Strategies, a New Jersey based company specializing in business
process re-engineering and the design and implementation of computer database
systems, from July 1994 to date. In addition, from August 1994 to January 1995
he was a manager for American International Group, managing a staff of 12 data
base administrators. From January 1991 through July 1994, he held positions with
Microsoft Corporation, first as a database specialist and network systems
engineer and then as a product manager for Microsoft Access.

      David Sultanik has been a director of the Company since January 1996. He
has been the managing/administrative partner of the Certified Public Accounting
firm Sultanik and Krumholz, LLC since June 1994. For more than five years prior
to that he was a principal at the accounting firm Perelson, Johnson & Rones,
P.C.

      Stephen A. Zelnick has been a director of the Company since January 1996.
He has been a partner in the law firm Morse, Zelnick, Rose & Lander, LLP since
its inception in August 1995. For more than five years prior to that he was of
counsel to the law firm Dreyer and Traub, LLP and has been practicing law for
more than 30 years.


                                       19
<PAGE>

      All directors hold office until the next annual meeting of shareholders
and until their successors are duly elected and qualified. Officers are elected
to serve, subject to the discretion of the Board of Directors, until their
successors are appointed.

      The Company's Board of Directors has established compensation and audit
committees. The Compensation Committee reviews and recommends to the Board of
Directors the compensation and benefits of all officers of the Company, reviews
general policy matters relating to compensation and benefits of employees of the
Company, and administers the issuance of stock options to the Company's
officers, employees, directors and consultants. The Company has agreed with the
placement agent in the Private Placement that until March 13, 2000, all
compensation arrangements between the Company and its directors, officers and
affiliates shall be reviewed by a compensation committee, the majority of which
is made up of independent directors. The Audit Committee meets with management
and the Company's independent auditors to determine the adequacy of internal
controls and other financial reporting matters.

Item 10. Executive Compensation

      The following Summary Compensation Table sets forth all compensation
earned, in all capacities, during the fiscal years ended December 31, 1995 and
1996 by (i) the Company's Chief Executive Officer and (ii) any other of the four
most highly compensated executive officers earning more than $100,000.

                           Summary Compensation Table

Name and Principal
Position                              Year                     Salary ($)

Leonard Osser,                        1996                    265,719 (1)
   President, CEO
   and CFO                            1995                     35,257(2)

Ronald Spinello, DDS
   Chairman of Spintech               1996                      126,306

----------
(1)   Includes $170,000 earned as President, Chief Executive Officer and Chief
      Financial Officer of Milestone and $95,719 earned as President and Chief
      Executive Officer of Spintech. Does not include $56,514 paid by the
      Company to Marilyn Elson, a certified public accountant who was employed
      by the Company to render accounting services. Ms. Elson is the wife of Mr.
      Osser.
(2)   Includes $22,885 earned as President, CEO and COO of Milestone and $12,372
      earned as President and CEO of Spintech. Does not include $4,600 paid by
      Milestone to Marilyn Elson for book keeping services rendered to as
      Comptroller of Milestone and $4,000 paid by Milestone and $2,250 paid by
      Spintech to the accounting firm of Sultanik and Krumholz, LLC, one of
      whose partners was Ms. Elson.


                                       20
<PAGE>

Compensation of Directors

      Non-employee directors are granted, upon becoming a director, five-year
options to purchase 20,000 shares at fair market value on the date of grant.
They receive no cash compensation.

Employment Agreements

      In March 1995, the Company entered into an employment agreement with Mr.
Osser which, as amended, provides for a term expiring in March 2000, with a
two-year non-competition period at the end of the term. Mr. Osser must devote
substantially all of his time to Company business. Under the employment
agreement Mr. Osser receives compensation at the annual rate of $170,000. Mr.
Osser's employment agreement permits him to assume executive positions with
subsidiaries or other entities in which the Company has invested and to receive
additional compensation from such other entity.

      In November 1995, the Company entered into an employment agreement with
Ronald P. Spinello, D.D.S., providing for his employment as Chairman and
Director of Research of Spintech for a five-year term beginning November 10,
1995 at an initial salary of $110,000 per annum and increasing by 10% per year
for each succeeding year throughout the term. The agreement also provides for
the payment to him of up to a $500,000 bonus at the end of the employment term,
depending on the achievement of certain profit projections for each year of the
term.

      In November 1996, the Company entered into a five-year employment
agreement with Gregory Volok, providing for his employment as Executive Vice
President. The agreement provides for an annual base salary of $120,000 and an
18-month non-competition period at the expiration of the term.

      In November 1996, the Company entered into an employment agreement with
Joel D. Warady providing for his employment as President and Chief Operating
Officer of Wisdom for a three-year term at an annual base salary of $105,000. If
the net income before Federal income taxes meets certain levels in the year
1997, 1998, and 1999, Mr. Warady will receive stock bonuses of 5,000, 7,000 and
10,000 shares of the Common Stock of the Company. The agreement also provides
for non-competition at the end of the term for six months or one year, depending
upon the reason the employment has terminated.


                                       21
<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth certain information as of March 28, 1997
regarding the ownership of Common Stock by each person known by the Company to
own 5% or more of the outstanding shares of Common Stock, each director of the
Company and all officers and directors of the Company as a group.

                                      Number of Shares
Name and Address (1)                       Owned(2)            Percent
--------------------                   ---------------         -------
Leonard Osser                                2,395,000(3)       43.1%
Gregory Volok                                    6,700(4)         *%
Giovanni Montoncello                            20,000(5)         *%
Michael J. McGeehan                             20,000(5)         *%
David Sultanik                                  20,000(5)         *%
Stephen A. Zelnick                             125,000(6)        2.2%
All directors and officers
as a group (7 persons)                      2,610,850 (7)       46.3%

----------
*     Less than 1%.
(1)   The addresses of the persons named in this table are as follows: Leonard
      Osser, 44 Kean Road, Short Hills, New Jersey 07078; Gregory Volok, 172
      Laurie Lane, Philadelphia, PA 19115; Giovanni Montoncello, Via Agostino
      Bertani 2, Milan Italy 20154; Michael J. McGeehan, 125 Middlesex Avenue,
      Piscataway, New Jersey 08854; David Sultanik, Sultanik and Krumholz, LLC,
      154 South Livingston Avenue, Livingston, New Jersey 07039; Stephen A.
      Zelnick, Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue, New York,
      New York 10022.
(2)   A person is deemed to be the beneficial owner of securities that can be
      acquired by such person within 60 days from the filing of this report upon
      the exercise of options and warrants or conversion of convertible
      securities. Each beneficial owner's percentage ownership is determined by
      assuming that options, warrants and convertible securities that are held
      by such person (but not held by any other person) and that are exercisable
      or convertible within 60 days from the filing of this report have been
      exercised or converted. Except as otherwise indicated, and subject to
      applicable community property and similar laws, each of the persons named
      has sole voting and investment power with respect to the shares shown as
      beneficially owned.
(3)   Consists of 1,586,000 held in the name of Leonard Osser, 800,000 shares
      held in the name of U.S. Asian Consulting Group, Inc., an affiliate of Mr.
      Osser, and 9,000 shares held by Guarantee and Trust Company for the
      benefit of U.S. Asian Consulting Group, Inc.
(4)   Consists of 4,000 shares held jointly with his wife and 2,700 shares held
      personally or in an IRA account.
(5)   Consists of 20,000 shares subject to stock options exercisable within 60
      days of the date hereof at $5.375 per share.


                                       22
<PAGE>

(6)   Includes 20,000 shares subject to stock options exercisable within 60 days
      of the date hereof at $5.375 per share and 100,000 shares as to which
      beneficial ownership is shared with certain partners not affiliated with
      the Company.
(7)   Includes 80,000 shares subject to stock options exercisable within 60 days
      of the date hereof at $5.375 per share.

Item 12. Certain Relationships and Related Transactions

      During 1994 and 1995 Leonard Osser provided demand loans to the Company
amounting to $44,559 and $119,000, bearing interest at 6% per annum. All loans
were repaid in November 1995.

         From April 1995 until February 28, 1997, Spintech leased its corporate
and administrative offices from LenRon Realty, Inc. ("LenRon"), pursuant to a
lease expiring March 31, 2000. The premises consisted of 1,500 sq. ft. on the
first and second floors of a two-story frame building. According to the terms of
the lease, annual rentals were to increase from $12,600 in the first year to
$28,000 in the year 2000 and Spintech was to pay increases in real estate taxes
and certain maintenance costs. Spintech leased additional warehouse and
manufacturing space from LenRon on a month-to-month basis at $1,000 per month.
Leonard Osser founded, is the President and since December 1996 the sole owner
of LenRon. On February 28, 1997, LenRon released Spintech from its continuing
obligations under the lease in anticipation of Spintech's relocation to the
Company's corporate headquarters in New Jersey.

      In March 1966 the Company organized Princeton PMC to market and sell
dental products. Initially Princeton PMC was a joint venture between the Company
and Gregory Volok. In December 1996 it became a wholly owned subsidiary when the
Company acquired Mr. Volok's one-third interest in Princeton PMC in exchange for
100 shares of Common Stock and an earnout of up to an additional 159,900 shares
based on the Company's future earnings.

      Beginning on January 1, 1994, Spintech has rented from Ronald Spinello,
DDS, on a month to month basis at the rate of $200 per month, shop space located
in the home of Dr. Spinello.


                                       23
<PAGE>

Item 13. Exhibits and Reports on Form 8-K.

(a)   Certain of the following exhibits were filed as Exhibits to the
      registration statement on form SB-2, Registration No. 33-92324 and
      amendments thereto (the "Registration Statement") filed by the Registrant
      under the Securities Act of 1933, as amended, or the reports filed under
      the Securities and Exchange Act of 1934, as amended, and are hereby
      incorporated by reference.

      Exhibit
        No.                 Description
      -------               -----------

         3.1         Certificate of Incorporation of the Company. (1)

         3.2         Certificate of Amendment filed July 13, 1995. (2)

         3.3         Certificate of Amendment filed October 31, 1996. (5)

         3.4         By-laws of the Company. (1)

         4.1         Specimen Stock Certificate. (2)

         10.1        Lease dated November 25, 1996 between Livingston Corporate
                     Park Associates, L.L.C. and the Company. (5)

         10.2        Employment Agreement between the Company and Leonard Osser.
                     (1)

         10.3        Amendment to Employment Agreement between the Company and
                     Leonard Osser. (5)

         10.4        Form of Underwriter's Warrant. (2)

         10.5        Financial Advisory and Investment Banking Agreement entered
                     into July 1, 1996 between GKN Securities Corp. and the
                     Company. (5)

         10.6        Form of Warrant dated June 30, 1996 granted to GKN
                     Securities Corp. and its designees for the purchase of an
                     aggregate of 250,000 shares of the Company's Common Stock.
                     (5)

         10.7        Agreement between Spintech and Team Technologies, Inc.
                     dated July 13, 1995. (2)

         10.8        Employment Agreement dated November 1, 1996 by and between
                     the Company and Gregory Volok. (5)


                                       24
<PAGE>

         10.9        Lease, as amended, dated November 6, 1991 between Raybec
                     Management Co. and Wisdom. (6)

         10.10       Employment Agreement made as of December 23, 1996 by and
                     between Sagacity I, Inc. and Joel D. Warady. (5)

         10.11       Employment Contract Terms Memorandum entered into by Ronald
                     P. Spinello and Milestone on September 21, 1994 and
                     Employment Agreement made as of November 10, 1995 among
                     Milestone, Spintech and Ronald P. Spinello. (5)

         10.13       Agreement for SDS Product dated September 1, 1996 between
                     Spintech and Princeton PMC. (5)

         10.14       Agreement for The Wand Product dated September 1, 1996
                     between Spintech and Princeton PMC. (5)

         10.15       Technology License Agreement dated September 20, 1996,
                     between Spintech and Biotronix Laboratories, Inc. (5)

         10.16       Exclusive Distributorship Agreement between Wisdom
                     Toothbrushes Limited and Sagacity I, Inc. (6)

         10.18       Agreement between Milestone and Spintech dated September
                     21, 1994 and Amendment No. 1 thereto. (2)

         16.1        Letter on Change in Certifying Accountant. (3)

         21.1        Subsidiaries of the Registrant. (5)


         ----------

         (1)  Filed with the initial filing of the Company's Registration
              Statement.

         (2)  Filed with Amendment No. 1 to the  Registration Statement.

         (3)  Filed with Form 8-K dated January 29, 1996.

         (4)  Filed with the Company's Form 10-KSB for the year ended December
              31, 1995.

         (5)  Filed herewith.

         (6)  In accordance with Rule 202 of Regulation S-T, this exhibit is
              being filed herewith in paper pursuant to a continuing hardship
              exemption.

(b)   There were no reports on Form 8-K filed by the Registrant during the last
      quarter of the period covered by this report.

<PAGE>

                         REPORT OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS


Board of Directors
    Milestone Scientific, Inc.


We have audited the accompanying consolidated balance sheet of Milestone
Scientific Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the two years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Milestone
Scientific Inc. and Subsidiaries as of December 31, 1996, and the consolidated
results of their operations and their consolidated cash flows for the two years
then ended, in conformity with generally accepted accounting principles.



GRANT THORNTON LLP


New York, New York
February 5, 1997, except for
    Notes J and P, as to
    which the dates are
    March 26 and March 20, 1997


                                      F-1
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEET

                                December 31, 1996

                                     ASSETS

CURRENT ASSETS
    Cash and cash equivalents                                       $   779,359
    Accounts receivable                                                 323,746
    Inventories                                                         508,727
    Prepaid expenses                                                     20,788
                                                                    -----------

           Total current assets                                       1,632,620

PROPERTY AND EQUIPMENT, NET                                             281,378

PATENTS                                                               2,039,816

DEFERRED FINANCING COSTS                                                635,000

OTHER ASSETS                                                             68,132
                                                                    -----------

                                                                    $ 4,656,946
                                                                    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Line of credit - bank                                           $    75,000
    Accounts payable                                                    483,537
    Accrued expenses                                                    102,310
    Deferred revenue                                                     38,517
                                                                    -----------

           Total current liabilities                                    699,364
                                                                    -----------

STOCKHOLDERS' EQUITY
    Common stock, par value $.001; authorized,
       10,000,000 shares; issued and outstanding,
       4,633,350 shares                                                   4,633
    Additional paid-in capital                                        6,819,341
    Deficit                                                          (2,736,352)
    Unearned compensation                                              (130,040)
                                                                    -----------

                                                                      3,957,582
                                                                    -----------

                                                                    $ 4,656,946
                                                                    ===========


The accompanying notes are an integral part of this statement.


                                      F-2
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                             Year ended December 31,

                                                      1995             1996
                                                   -----------      -----------

Revenues                                           $     3,473      $   302,388
Cost of sales                                            7,459          195,659
                                                   -----------      -----------

         Gross profit (loss)                            (3,986)         106,729
                                                   -----------      -----------

General and administrative expense                     336,816        2,225,737
Research and development expense                        24,777          167,600
                                                   -----------      -----------

                                                       361,593        2,393,337
                                                   -----------      -----------

         Loss from operations                         (365,579)      (2,286,608)
                                                   -----------      -----------

Other income and expense
    Interest expense                                  (294,096)
    Interest income                                     10,495           73,203
    Minority interest in net loss of
      subsidiary                                        45,555          177,568
    Other                                              (16,206)          86,309
                                                   -----------      -----------

                                                      (254,252)         337,080
                                                   -----------      -----------

         NET LOSS                                  $  (619,831)     $(1,949,528)
                                                   ===========      ===========

Loss per share                                     $      (.20)     $      (.43)
                                                   ===========      ===========

Weighted average shares outstanding                  3,142,575        4,570,775
                                                   ===========      ===========


The accompanying notes are an integral part of these statements.


                                      F-3
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                     Years ended December 31, 1995 and 1996

<TABLE>
<CAPTION>
                                            Common stock         Additional
                                       -----------------------     paid-in                   Unearned
                                        Shares       Amount        capital      Deficit    compensation     Total
                                        ------       ------        -------      -------    ------------     -----
<S>                                    <C>         <C>           <C>         <C>           <C>            <C>
Balance, January 1, 1995               2,792,500   $     2,793   $  284,740  $  (166,993)                 $   120,540

Private placement of units                57,500            57       65,258                                    65,315
Proceeds from public offering, net
   of $277,473 in offering costs       1,500,000         1,500    4,821,027                                 4,822,527
Shares issued to the Advisory
   Committee                             130,000           130      519,870                $  (520,000)
Compensation expense                                                                           129,960        129,960
Net loss for the year ended
   December 31, 1995                                                            (619,831)                    (619,831)
                                      ----------   -----------   ----------  -----------    ---------     -----------

Balance, December 31, 1995             4,480,000         4,480    5,690,895     (786,824)    (390,040)      4,518,511

Shares issued in connection with the
   business combinations accounted
   for as purchases                       23,350            23      111,076                                   111,099
Shares issued to consultants             130,000           130      382,370                                   382,500
Compensation expense                                                                          260,000         260,000
Warrants issued to placement agent                                  635,000                                   635,000
Net loss for the year ended
   December 31, 1996                                                          (1,949,528)                  (1,949,528)
                                      ----------   -----------   ----------  -----------    ---------     -----------

Balance, December 31, 1996             4,633,350   $     4,633   $6,819,341  $(2,736,352)   $(130,040)    $ 3,957,582
                                      ==========   ===========   ==========  ===========    =========     ===========
</TABLE>


The accompanying notes are an integral part of this statement.


                                      F-4
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             Year ended December 31,

<TABLE>
<CAPTION>
                                                            1995          1996
                                                         -----------   -----------
<S>                                                      <C>           <C>
Cash flows from operating activities
  Net loss                                               $  (619,831)  $(1,949,528)
  Adjustments to reconcile net loss to net cash used in
    operating activities
      Amortization of excess of purchase price over
        tangible net assets                                   26,084       229,544
      Amortization and depreciation                           24,237         3,790
      Loss applicable to minority interest                    45,555      (211,326)
      Loss on disposal of assets                              16,206
      Compensation expense                                   129,960       642,500
      Interest expense resulting from debt discount          294,096
      Bad debt expense                                                      10,547
      Changes in assets and liabilities, net of effects
        from acquisition of businesses
          Decrease in interest and other receivables           4,090
          (Increase) decrease in accounts receivable           3,371       (64,174)
          (Increase) in inventories                           (3,346)      (63,495)
          (Increase) decrease in prepaid expenses              2,822        (3,078)
          (Increase) in other assets                                       (61,640)
          Increase (decrease) in accounts payable             54,320       (93,770)
          Increase (decrease) in accrued expenses            (33,724)       63,628
          Increase in deferred revenue                                      38,517
                                                         -----------   -----------
     Net cash used in operating activities                   (56,160)   (1,458,485)
                                                         -----------   -----------
Cash flows from investing activities
  Acquisition of businesses, net                          (2,354,320)
  Issuance of note receivable                               (277,500)
  Repayment of note receivable                               632,500
  Capital expenditures                                        (3,000)      (93,795)
                                                         -----------   -----------
     Net cash used in investing activities                (2,002,320)      (93,795)
                                                         -----------   -----------
Cash flows from financing activities
  Net proceeds from public offering                        4,822,527
  Net proceeds from issuance of common stock                  65,315
  Proceeds from issuance of debt                              38,525
  Costs of issuance of debt                                   (5,609)
  Repayment of debt                                         (500,000)
  Loans from stockholder                                     119,000
  Repayment to stockholder                                  (163,559)
  Proceeds from promissory notes                             200,000
  Repayment of promissory notes                             (200,000)
                                                         -----------   -----------
     Net cash provided by financing activities             4,376,199
                                                         -----------   -----------
     NET INCREASE (DECREASE) IN CASH
        AND CASH EQUIVALENTS                               2,317,719    (1,552,280)
Cash and cash equivalents at beginning of year                13,920     2,331,639
                                                         -----------   -----------
Cash and cash equivalents at end of year                 $ 2,331,639   $   779,359
                                                         ===========   ===========
</TABLE>


                                      F-5
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

                             Year ended December 31,

In 1996, Milestone Scientific Inc. acquired, in merger transactions,
substantially all of the business assets of Princeton PMC, Inc. and Sagacity I,
Inc., subject to certain liabilities, in exchange for 23,350 shares of
Milestone's common stock.

In 1996, the Company issued warrants to its placement agent. Those warrants have
been measured at fair value and were established as deferred financing costs
with a corresponding offset to additional paid-in capital.


The accompanying notes are an integral part of these statements.


                                      F-6
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 1995 and 1996

NOTE A - ORGANIZATION AND SUMMARY OF
                   SIGNIFICANT ACCOUNTING POLICIES

      Organization of Business

      Milestone Scientific Inc. (formerly U.S. Opportunity Search, Inc.) (the
      "Company") was incorporated in the State of Delaware in August 1989. The
      Company develops, manufactures, markets and sells equipment and related
      disposable or consumable items and other products for use primarily by the
      dental practitioner in the United States.

      In November 1995, the Company purchased 65% of the common stock of
      Spintech, Inc. ("Spintech"). (See Note C.) Spintech was founded to perform
      research and to develop patented products for use by health care
      providers. Spintech has had only limited sales of its products. These
      limited sales provide no assurance that Spintech will be able to
      successfully market these products and that demand will be at the levels
      at which Spintech can operate profitably.

      In March 1996, the Company, together with one of its officers, founded
      Princeton PMC, Inc. ("Princeton PMC") as a marketing company. The Company
      acquired the remaining outstanding shares of Princeton PMC, Inc. common
      stock owned by the officer in November 1996, making Princeton PMC, Inc. a
      wholly-owned subsidiary. In December 1996, the Company acquired Sagacity
      I, Inc., Doing Business in the United States as the Wisdom Toothbrush Co.
      ("Wisdom"), and obtained United States distribution rights to the Wisdom
      line of toothbrushes and prophylaxis products (see Note C). Wisdom has an
      exclusive three-year distributor agreement in the United States, Canada
      and other areas with Wisdom Toothbrushes Limited.

      A summary of the significant accounting policies consistently applied in
      the preparation of the accompanying financial statements follows:

      1.    Principles of Consolidation

      The consolidated financial statements include the accounts of the Company
      and all of its wholly-owned and majority-owned subsidiaries. All material
      intercompany accounts and transactions have been eliminated. The operating
      results of Spintech have been included in the Company's consolidated
      financial statements since November 1995, the date of acquisition; the
      operating results of Princeton PMC have been included since its formation
      in March 1996; and the operating results of Wisdom have been included
      since December 1996, the date of acquisition.


                                      F-7
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1995 and 1996

NOTE A (continued)

      2.    Inventories

            Inventories are valued at the lower of cost or market with cost
            being determined by the first-in, first-out ("FIFO") method.
            Inventories principally consist of finished goods.

      3.    Property and Equipment

            Property and equipment are stated at cost and depreciated using
            straight-line and accelerated methods over the estimated useful
            lives of the assets.

      4.    Deferred Costs

            Deferred costs included in other assets consist of costs related to
            a 1997 private placement. The deferred private placement costs will
            be charged against the equity raised through the 1997 private
            placement.

      5.    Revenue Recognition

            The Company recognizes revenue from sales when title to merchandise
            passes to customers, including distributors. Customers and
            distributors do not have any right to return units, except a limited
            right to return defective units.

            Deferred revenue represents the amount received under a contract for
            which the earnings process was not complete.

      6.    Financing Costs

            Financing costs incurred in connection with the Company's 1995
            Private Placement have been fully amortized in 1995.

            Deferred financing costs at December 31, 1996 will be charged
            against proceeds received from the 1997 Private Placement.


                                      F-8
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1995 and 1996

NOTE A (continued)

      7.    Discount on Notes Payable

            Discount on notes payable was amortized over the term of the related
            debt.

      8.    Research and Development

            Research and development costs are expensed as incurred.

      9.    Offering Costs

            Costs relating to the Company's Offering in 1995 have been offset
            against the proceeds of the Offering.

      10.   Patents

            The excess of the Company's cost over the tangible net assets of
            Spintech has been allocated to patents and is being amortized over a
            ten-year period using the straight-line method. The recoverability
            of the carrying values of the patents will be evaluated on a
            recurring basis.

      11.   Cash and Cash Equivalents

            For purposes of the statements of cash flows, the Company considers
            all highly liquid investments purchased with a maturity of three
            months or less to be cash equivalents. At December 31, 1996, cash
            equivalents consisted of approximately $700,685 of United States
            Treasury Bills.

      12.   Loss Per Share

            Loss per share is computed based on the weighted average number of
            shares of common stock outstanding. The effect on the loss per share
            of warrants and options outstanding is antidilutive and has not been
            included in the calculation of weighted average shares outstanding.


                                      F-9
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1995 and 1996

NOTE A (continued)

      13.   Stock Split

            In July 1995, the Company effected a 10-for-1 stock split.

      14.   Use of Estimates in Financial Statements

            In preparing financial statements in conformity with generally
            accepted accounting principles, management makes estimates and
            assumptions that affect the reported amounts of assets and
            liabilities and disclosures of contingent assets and liabilities at
            the date of the financial statements, as well as the reported
            amounts of revenues and expenses during the reporting period. Actual
            results could differ from those estimates.

NOTE B - PROPERTY AND EQUIPMENT

      Property and equipment at December 31, 1996 consist of the following:

        Tooling and dies                                    $185,062
        Office equipment                                      88,468
        Trade show displays                                   53,816
                                                            --------

                                                             327,346
        Less accumulated depreciation                        (45,968)
                                                            --------

                                                            $281,378
                                                            ========

NOTE C - ACQUISITIONS

      Princeton PMC

      In March 1996, the Company, together with one of its officers, entered
      into a shareholder's agreement to form Princeton PMC, a corporation, to
      engage in the marketing and sales of dental products. The Company
      contributed $85,000 for 200 shares of this entity representing a
      two-thirds ownership.


                                      F-10
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1995 and 1996

NOTE C (continued)

      In November 1996, the Company purchased the remaining one-third of
      Princeton PMC's outstanding stock for 100 shares of its common stock. The
      acquisition has been recorded using the purchase method of accounting. The
      purchase price approximated the net tangible assets acquired. The
      operating results of Princeton PMC have been included in the Company's
      consolidated financial statements as follows: two-thirds through October
      1996 and 100% from November to December 1996.

      In connection with the acquisition of Princeton PMC, additional shares of
      common stock could be issued depending upon the Company's average earnings
      over the next two years as defined. The Company is obligated to issue
      159,900 shares of its common stock if certain income levels are achieved.
      The fair value of the common stock would be classified as compensation
      expense charged to the statement of operations.

      Wisdom

      In December 1996, the Company completed the purchase of Wisdom's
      outstanding stock by issuing 23,250 shares of its common stock valued at
      $110,437. The acquisition has been recorded using the purchase method of
      accounting. The cost was less than the subsidiary's net assets at the date
      of acquisition. The excess of net assets over cost has been applied to
      reduce the amounts assigned to noncurrent assets of the subsidiary. The
      operating results of Wisdom have been included in the Company's
      consolidated financial statements since the date of acquisition.

      The following unaudited consolidated pro forma results of operations
assume the acquisition occurred as of the inception date of Wisdom (April 9,
1996):

                                                                     Pro forma
                   The Company        Wisdom                        consolidated
                  ------------    ---------------                   ------------
                   Year ended      April 9, 1996                     Year ended
                  December 31,    to December 31,                   December 31,
                      1996             1996         Eliminations        1996
                  ------------    ---------------   ------------    ------------

Net revenues      $   302,388       $ 1,538,180     $  (115,592)   $1,724,976
Net loss           (1,959,528)          (87,769)                   (2,037,297)

Loss per share    $      (.43)      $      (.02)                   $     (.45)




                                      F-11
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1995 and 1996

NOTE C (continued)

      The pro forma financial information is not necessarily indicative of the
      operating results that would have occurred had the purchase been
      consummated as of the inception date, nor are they necessarily indicative
      of future operating results.

      Spintech

      In November 1995, the Company completed the purchase of 65% of Spintech's
      outstanding stock on a fully diluted basis for $2,700,000. The Company
      paid $2,026,495, which represents the $2,700,000 less amounts advanced to
      Spintech amounting to $632,500 plus interest of $41,005. The acquisition
      has been recorded using the purchase method of accounting. The excess of
      the aggregate purchase price over the net tangible assets acquired was
      allocated to patents and is being amortized over ten years. The operating
      results of Spintech have been included in the Company's consolidated
      financial statements since the date of acquisition. The minority interest
      has been valued at zero as of December 31, 1996.

      The Company also holds a series of annual options to purchase, for a
      nominal amount, an additional 3% of Spintech's outstanding shares
      following each of the first five fiscal years commencing after the closing
      of the stock purchase (or an aggregate of 15% of such shares if all of the
      options are exercised). Each option is exercisable only if Spintech does
      not achieve a specified pretax profit target as defined in the applicable
      fiscal year. In addition, the Company had provided a one-year revolving
      working capital line of credit for Spintech in the amount of $500,000
      bearing interest at the rate of 8% per annum. The line expired in 1996 and
      as of December 31, 1996, $510,000 was still outstanding. These advances
      are due on demand with interest at 8%.

NOTE D - PRIVATE PLACEMENT

      Commencing in November 1994, the Company sold an aggregate of 50 Bridge
      Loan Units (the "Units") for $10,050 each. Each Unit consisted of a
      $10,000 promissory note, bearing interest at 8% per annum, due and payable
      at the earlier of the closing of the Offering or two years after issuance,
      and 5,000 shares of the Company's common stock. Pursuant to Accounting
      Principles Board Opinion No. 14, management allocated the gross proceeds
      between equity and debt based upon their relative fair values. The net
      proceeds of the private placement at December 31, 1994 and 1995 were


                                      F-12
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1995 and 1996

NOTE D (continued)

      $306,621 (38.5 units) and $98,749 (11.5 units), respectively, ($405,730
      cumulative). In connection with the sale of the Units, the Company
      incurred costs of $80,304 through December 31, 1994 and an additional
      $16,826 through December 31, 1995, which was allocated between the equity
      and debt, based on their relative fair values. The portion allocated to
      the notes of $26,768 and $5,608 at December 31, 1994 and 1995,
      respectively, was included in deferred financing costs and with the
      related debt discount was amortized over the term of the notes. During
      November 1995, all notes were paid in full.

NOTE E - LOAN PAYABLE TO STOCKHOLDER

      During 1995, the Chief Executive Officer provided demand loans to the
      Company amounting to $119,000, bearing interest at 6% per annum. All loans
      were repaid in November 1995.

NOTE F - LINE OF CREDIT - BANK

      Wisdom has a $75,000 line of credit with a bank with interest at the
      bank's prime rate plus 1%. The line is collateralized by substantially all
      assets of Wisdom. Advances under the line are in the form of demand notes.

NOTE G - INCOME TAXES

      At December 31, 1996, the Company has net operating loss carryforwards of
      approximately $1,064,000. The net operating losses expire principally in
      2010 and 2011. The net operating loss for 1995 and 1996 excludes the
      minority interest loss in Spintech. Management has provided a full
      valuation allowance for the tax benefit of the net operating losses due to
      the uncertainty of its realization (approximately $362,000 at December 31,
      1996). The valuation allowance increased by $123,000 in 1996. The
      utilization of the loss carryforwards may be limited due to an ownership
      change as defined by Section 382 of the Internal Revenue Code.

      The Company and Spintech file separate Federal and State income tax
      returns.


                                      F-13
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1995 and 1996

NOTE H - STOCKHOLDERS' EQUITY

      In 1994, the Company issued 192,500 shares of common stock in conjunction
      with its Private Placement.

      In 1995, the Company issued 57,500 shares of common stock in conjunction
      with its Private Placement.

      In November 1995, the Company completed an offering of 1,500,000 shares of
      its common stock at a price of $4.00 per share, resulting in net proceeds
      of approximately $4,822,000.

      Proceeds were used as follows:

      Payment of balance due to Spintech                       $2,026,495
      Repayment of
        Bridge units                                              535,190
        Promissory notes                                          208,000
        Stockholder                                               120,411
                                                               ----------
                                                               $2,890,096
                                                               ==========

      The remaining proceeds were to be used for general corporate purposes,
      including making available a $500,000 line of credit to Spintech.

      In conjunction with the offering, the Company has agreed to sell to the
      underwriter, for nominal consideration, warrants to purchase from the
      Company 50,000 shares of common stock at an exercise price of $6 per share
      for a three-year period commencing two years from the effective date of
      the Offering, November 3, 1995. The warrants include certain antidilution
      provisions.

      The Company borrowed $200,000 from two accredited investors pursuant to
      promissory notes, bearing interest at 8% per annum, that were paid in full
      in November 1995. In connection with these notes, the Company also issued
      warrants to these investors to purchase 100,000 shares of common stock at
      an exercise price of $6; such warrants to be in the form of and to be
      identical in all other respects to the Underwriter's Warrants, for a
      period of three years commencing two years from the effective date of the
      Offering.


                                      F-14
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1995 and 1996

NOTE H (continued)

      The Company has issued 130,000 shares to the Advisory Board in
      consideration for their agreement to serve on the Advisory Board for at
      least two years. If any member fails to serve his term, except because of
      death or disability, his shares will be returned to the Company for
      cancellation. The market value of the shares issued was $520,000. This
      amount was recorded as unearned compensation and is shown as a separate
      component of stockholder's equity. Unearned compensation is being
      amortized to expense over a two-year period and amounted to approximately
      $130,000 and $260,000 for the years ended December 31, 1995 and 1996,
      respectively.

      The Company has issued 130,000 shares to two consultants for services
      provided to the Company. The agreement with one of the consultants
      stipulates that if the consultant is permitted to sell and does sell the
      shares issued to him and realizes from such sale net proceeds of less than
      $5 per share, the Company shall supplement such proceeds up to $5 per
      share, provided the Company's total obligation shall not exceed $105,000.

      In 1996, the Company granted stock options to certain of its directors and
      two consultants to purchase 135,000 shares of its common stock at prices
      ranging from $5.375 to $6.50 per share. The options expire five years from
      the date of grant, vest over one to three years and contain certain
      antidilution provisions.

      In July 1996, the Company issued a three-year warrant to purchase 250,000
      shares of its common stock at an exercise price of $6.50 per share to its
      placement agent and its designees. These warrants have been measured at
      fair value and were established as deferred financing costs with a
      corresponding offset to additional paid-in capital.

      Stock-Based Compensation

      The Company has elected to follow Accounting Principles Board Opinion No.
      25 ("APB No. 25"), "Accounting for Stock Issued to Employees", and related
      interpretations in accounting for its stock options. Under APB No. 25,
      because the exercise price of the Company's employee stock options equals
      the market price of the underlying stock on the date of grant, no
      compensation expense is recognized. However, SFAS No. 123, "Accounting for
      Stock-Based Compensation," requires presentation of pro forma net income
      and earnings per share as if the Company had accounted for its


                                      F-15
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1995 and 1996

NOTE H (continued)

      employee stock options granted subsequent to December 31, 1994, under the
      fair value method of that statement. For purposes of pro forma disclosure,
      the estimated fair value of the options is amortized to expense over the
      vesting period. Under the fair value method, the Company's net loss and
      loss per share would have been increased as follows:

        Net loss                                          $247,000
        Loss per share                                    $    .04

      Because SFAS No. 123 is applicable only to options granted subsequent to
      December 31, 1994, and some options have a two- to three-year vesting
      period, the pro forma effect will not be fully reflected until 1999.

      The weighted-average fair value of the individual options granted during
      1996 is estimated as $2.54 on the date of grant. The fair value for 1996
      was determined using a Black-Scholes option-pricing model with the
      following assumptions:

        Dividend yield                                       -
        Volatility                                         48.80%
        Risk-free interest rate                             6.33
        Forfeiture rate                                      -
        Expected life                                     3 years


                                      F-16
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1995 and 1996

NOTE H (continued)

      Stock option activity during 1995 - 1996 is summarized below:

<TABLE>
<CAPTION>
                                               Shares of common         Weighted-average
                                             stock attributable to      exercise price of
                                             options and warrants     options and warrants
                                             --------------------     --------------------
<S>                                                    <C>                      <C>
         Unexercised at December 31, 1994               -                    $   -
         Granted                                       150,000                  6.000
         Exercised                                      -                       -
         Forfeited                                      -                       -
                                                  ------------

         Unexercised at December 31, 1995              150,000                  -
         Granted                                       385,000                  5.8247
         Exercised                                      -                       -
         Forfeited                                      -                       -
                                                  ------------

         Unexercised at December 31, 1996              535,000                  5.8738
                                                       =======
</TABLE>

      The following table summarizes information concerning outstanding and
exercisable options at December 31, 1996:

                               Options and warrants outstanding      Number of
                            -------------------------------------     options
                              Number                Remaining       and warrants
       Exercise prices      outstanding          contractual life   exercisable
       ---------------      -----------          ----------------   -----------

          $5.375              120,000                 4.0466           60,000
           6.00               150,000                 3.8384          150,000
           6.50                15,000                 4.7890            5,000
           6.50               250,000                 2.4959          250,000

      Shares exercisable at December 31, 1996 and 1995 were 465,000 and 150,000,
respectively.


                                      F-17
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1995 and 1996

NOTE I - LICENSE AGREEMENT

      In November 1993, Spintech entered into a nonexclusive license agreement
      for products covered by certain of Spintech's patents (the "License
      Agreement"). The License Agreement was effective through the expiration of
      the licensed patents. Spintech received a $100,000 initial advance payment
      in conjunction with the License Agreement to be credited against future
      earned royalties. In order to maintain the rights under the License
      Agreement, after the first full year of the License Agreement, the
      licensee was required to generate minimum royalties for any full quarterly
      period; otherwise, Spintech had the right to terminate the License
      Agreement and keep the $100,000 initial advance payment. The licensee had
      the right to maintain the License Agreement by paying a minimum quarterly
      royalty of $10,000. The License Agreement was voided by Spintech in
      February 1995 due to the licensee not meeting the quarterly royalty
      minimums. Spintech recorded $100,000 of royalty income in the first
      quarter of fiscal 1995.

      In January 1996, the licensee demanded the return of the initial advance
      made to Spintech. Spintech filed an action in York County, Pennsylvania
      requesting the court to declare that the Company is not liable to return
      the advance. Management believes that the ultimate outcome of this matter
      will not have a material adverse effect.

NOTE J - EMPLOYMENT CONTRACTS

      Milestone

      In March 1995, the Company entered into a five-year employment contract,
      as amended, with the Company's President providing for annual compensation
      of $170,000, which became effective upon consummation of the Offering on
      November 3, 1995.

      In November 1996, the Company entered into a five-year employment
      agreement with the Company's Executive Vice-President providing for annual
      compensation of $120,000. This agreement supersedes a consultant
      agreement, dated March 12, 1996, that the two parties had previously
      entered into.


                                      F-18
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1995 and 1996

NOTE J (continued)

      Spintech

      Spintech entered into an employment agreement with Spintech's Director of
      Research for a five-year term beginning on November 10, 1995, at an
      initial salary of $110,000 per annum and increasing by 10% per year for
      each succeeding year throughout the term. The agreement also provides for
      the payment of up to a $500,000 bonus at the end of the employment term
      depending on the achievement of certain profit projections during his
      employment term. The Director of Research has demanded certain revisions
      to this agreement. The Company is engaged in ongoing discussions with him.

      On March 26, 1997, the Company commenced legal action against Spintech's
      Director of Research. The Company seeks recovery of damages for
      interference with existing and prospective contract and business
      relationships, a declaratory judgment that the Director of Research has no
      personal rights to certain technology developed while he was employed by
      Spintech and a declaratory judgment that the Company has not breached the
      Director of Research's employment agreement or the agreement for the
      purchase by the Company of a 65% equity interest in Spintech. No answer
      has yet been filed.

      Spintech also entered into a five-year employment agreement commencing on
      November 10, 1995 with the Vice President of Operations at a salary of
      $50,000 per year increasing by 10% per year for each succeeding year
      throughout the term of his employment. His employment was terminated on
      March 3, 1997.

      Wisdom

      In December 1996, Wisdom entered into a three-year employment agreement
      with its President for annual compensation of $105,000. The parties can
      elect to renew the term for additional one-year periods. In addition, the
      agreement provides for stock bonuses in 1997, 1998 and 1999 of 5,000,
      7,000 and 10,000 shares, respectively, of the Company's common stock if
      Wisdom achieves certain net income levels as defined.


                                      F-19
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1995 and 1996

NOTE K - LITIGATION

      In 1993, Spintech was named in a lawsuit by DOCC Inc. ("DOCC") for
      infringement of certain patents related to the Company's "TAPS" product.
      The Company successfully defended the litigation and received a final
      judgment in its favor in August 1994. The final judgment awarded the
      Company damages of approximately $260,000 representing certain costs and
      expenses incurred in connection with the litigation (the "Award").
      Subsequently, Spintech entered into a Stipulation of Settlement dated
      February 1995 reducing the Award to $180,000 payable in three
      installments. During 1996, $65,000 was received as full settlement of the
      litigation. This amount was recognized as income in 1996 and is included
      in Other on the consolidated statements of operations.

NOTE L - LEASE COMMITMENTS

      Spintech

      Commencing April 1, 1995, Spintech entered into a five-year lease for its
      corporate headquarters from LenRon Realty, Inc. ("LenRon"). LenRon was
      one-half owned by the Chief Executive Officer of the Company and the other
      half by a stockholder of Spintech and, as of December 1996, wholly-owned
      by the Chief Executive Officer. The lease terminated on March 13, 1997
      when Spintech moved its operations to Wisdom's facilities.

      Spintech also uses approximately 4,000 sq. ft. of storage and light
      manufacturing space in a warehouse building contiguous to its corporate
      and administrative offices. Under an informal rental arrangement with
      LenRon, the Company pays approximately $1,000 per month for the use of
      this facility. The informal arrangement terminated on April 30, 1996.

      Effective January 1, 1994, Spintech leased shop space from a stockholder
      and employee on a month-to-month basis at $200 per month and incurred a
      total of $2,400 rent for the years ended December 31, 1996 and 1995,
      respectively.

      Milestone

      On November 25, 1996, the Company signed a five-year-and-one-month lease
      agreement for its corporate headquarters. The lease is scheduled to
      commence on March 1, 1997 at a rate of $4,040 per month for months one
      through thirty and $4,264 per month for months thirty-one through
      sixty-one.


                                      F-20
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1995 and 1996

NOTE L (continued)

      Wisdom

      On July 31, 1994, Wisdom signed a lease addendum for its facilities
      extending its original lease term three years with a monthly base rent of
      $2,688 for the period January 1, 1995 through December 31, 1997.

      The Company also leases equipment under operating leases.

      The following represents approximate minimum rental payments under such
      leases:

                      Year ending December 31,
                        1997                                 $ 97,000
                        1998                                   63,000
                        1999                                   54,000
                        2000                                   56,000
                        2001                                   54,000
                        2002 and thereafter                    13,000
                                                             --------

                                                             $337,000
                                                             ========

      Rent expense was approximately $33,000 and $28,000, of which $23,800 and
      $19,400 was paid to Len Ron for the years ended December 31, 1996 and
      1995, respectively.

NOTE M - RELATED PARTY TRANSACTIONS

      1.    The Company incurred accounting fees of approximately $6,250 to an
            accounting firm in which the wife of the Chief Executive Officer of
            the Company was a partner, for the year ended December 31, 1995.

      2.    The Company paid $4,600 to the wife of the Chief Executive Officer
            of the Company for bookkeeping services for the year ended December
            31, 1995.

      3.    Spintech paid approximately $220,500 during 1996 to a company for
            the manufacturing of its "TAPS" and "SDS" products. An official of
            the company is on the Board of Directors of Spintech. Accounts
            payable to this affiliate at December 31, 1996 were approximately
            $12,000.


                                      F-21
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1995 and 1996

NOTE N - COMMITMENTS AND CONTINGENCIES

      1.    Failure to use Spintech's "TAPS" and "SDS" units in accordance with
            recommended operating procedures could potentially result in
            subjecting users to health hazards or injury. For example, premature
            removal of syringes and other materials before completion of the
            melt cycle could subject users to puncture with contaminated needles
            prior to their complete encapsulation or inclusion of excessive
            amounts of blood-soaked gauze or other material could result in the
            release of noxious fumes from the sterilizer. In addition, the
            sterilizer heats material to high temperatures and misuse or
            malfunction of the unit could result in danger of fire or shock. Any
            of the foregoing or other failures of the sterilizer to function
            properly could subject Spintech to claims of liability. Spintech
            carries product liability insurance in the amount of $1,000,000 per
            occurrence and $1,000,000 overall.

      2.    In June 1996, the Company entered into a consulting agreement with a
            dentist for $25,000 per annum for three years.

      3.    All of Spintech's "SDS" units are manufactured by a single domestic
            contract manufacturer, Arbutus Electronics, Inc. ("Arbutus").
            Spintech has no ongoing agreement for the manufacture of its "SDS"
            products with Arbutus or any other manufacturer, although it expects
            Arbutus to continue to manufacture such units. In July 1995, the
            Company entered into an agreement with Team Technologies, Inc.
            ("TTI") for the production of "SplatrFree(TM)" prophy angles. The
            Company believes that commercial delivery of the prophy angles will
            begin during the first quarter of 1997. Termination of the
            manufacturing relationship with Arbutus or TTI could significantly
            and adversely affect the Company's ability to produce and sell its
            "SDS" units and prophy angles, respectively. Though alternate
            sources of supply exist and new manufacturing relationships could be
            established by the Company for the "SDS" and prophy angle, the
            Company would need to recover its existing tools and dies or have
            new tools and dies produced. Establishment of new manufacturing
            relationships could involve significant expense and delay. Any
            curtailment or interruption of the supply of "SDS" units from
            Arbutus, or prophy angles from TTI, whether or not as a result of
            termination of the relationship, would adversely affect the Company.
            Additionally, the Company has not established manufacturing
            relationships for "The Wand(TM)," a proposed new product.


                                      F-22
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1995 and 1996

NOTE O - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

      Financial instruments which potentially subject the Company to
      concentrations of credit risk consist principally of trade accounts
      receivable. Concentrations of credit risk with respect to trade accounts
      receivable are limited due to the large number of customers comprising the
      Company's customer base, and their dispersion across different geographic
      areas. The Company routinely assesses the financial strength of its
      customers and, as a consequence, believes that its trade accounts
      receivable credit risk exposure is limited. Generally, the Company does
      not require collateral or other security to support customer receivables.

      Spintech's largest customer was Wisdom. Revenues of approximately $115,600
      were recognized for the year ended December 31, 1996 prior to the
      acquisition.

      No other customer accounted for more than 10% of revenues in 1996 or 1995.

NOTE P - SUBSEQUENT EVENTS

      In March 1997, Spintech moved its executive and administrative offices to
      Livingston, New Jersey, and its operations to Chicago, Illinois.

      Private Placement

      In March 1997, the Company sold, in a private placement, an aggregate of
      852,262 units at $4.72 per unit for net proceeds of $3,505,964. Each unit
      consisted of one share of common stock and one common stock purchase
      warrant. Each warrant entitles the holder to purchase one share of common
      stock for three years from the closing of the offering at an exercise
      price of $4.72 per share. In addition, the placement agent received
      warrants to purchase 85,226 units at $4.72 per unit. Deferred financing
      costs at December 31, 1996 will be charged against the proceeds received
      from this 1997 Private Placement.


                                      F-23
<PAGE>
                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                       Milestone Scientific Inc.

                                       By: /S/ Leonard Osser
                                           -----------------------------
                                           Leonard Osser,
                                           President, Chief Executive and
                                           Chief Financial Officer

Date:  March 28, 1996

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.

         Signature                 Date                       Title
         ---------                 ----                       -----



/s/ Leonard Osser                  March 28, 1997    President, Chief Executive
-------------------------------                      Officer, Chief Financial
    Leonard Osser                                    Officer and Director



/s/ Gregory Volok                  March 28, 1997    Executive Vice President
-------------------------------                      Chief Operating Officer and
    Gregory Volok                                    Director



/s/ Joel Warady                    March 28, 1997    Vice President
-------------------------------
    Joel Warady



-------------------------------    _______________   Director
Giovanni Montoncello



/s/ Michael J. McGeehan            March 28, 1997    Director
-------------------------------
    Michael J. McGeehan



-------------------------------    _______________   Director
    David Sultanik


/s/ Stephen A. Zelnick             March 28, 1997    Director
------------------------------
    Stephen A. Zelnick